Question

Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the IRR of the PJX5?

a. The PJX5 will cost $1.63 million fully installed and has a 10 year life. It will be depreciated to a book value of $273,720.00 and sold for that amount in year 10.

b. The Engineering Department spent $26,415.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $18,320.00.

d. The PJX5 will reduce operating costs by $379,868.00 per year.

e. CSD’s marginal tax rate is 33.00%.

f. CSD is 74.00% equity-financed.

g. CSD’s 15.00-year, semi-annual pay, 5.48% coupon bond sells for $990.00.

h. CSD’s stock currently has a market value of $20.94 and Mr. Bensen believes the market estimates that dividends will grow at 2.89% forever. Next year’s dividend is projected to be $1.74.

Submit

Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the NPV of the PJX5?

a. The PJX5 will cost $2.23 million fully installed and has a 10 year life. It will be depreciated to a book value of $293,998.00 and sold for that amount in year 10.

b. The Engineering Department spent $21,324.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $17,435.00.

d. The PJX5 will reduce operating costs by $419,494.00 per year.

e. CSD’s marginal tax rate is 22.00%.

f. CSD is 59.00% equity-financed.

g. CSD’s 13.00-year, semi-annual pay, 5.56% coupon bond sells for $955.00.

h. CSD’s stock currently has a market value of $24.92 and Mr. Bensen believes the market estimates that dividends will grow at 4.38% forever. Next year’s dividend is projected to be $1.48.

Answer format: Currency: Round to: 2 decimal places.

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